Sputtering Sirva bets on relocation biz

With its profits faltering and investors lined up to sue the company, Sirva Inc. has embarked on one of the largest acquisitions in its history.

The Westmont company, which owns such household moving brands as Allied Van Lines and North American Van Lines, has been expanding into a broader array of relocation services for corporate clients in recent years, ranging from brokering home sales to assisting with temporary rentals. On Nov. 9 Sirva announced it planned to acquire a Chicago specialist in that business, Executive Relocation Corp., from its owner, LaSalle Bank Corp.

The deal is expected to close this week. Sirva is paying a big price, $100 million in cash, for a business with just $30 million in annual revenues. The purchase reflects, in part, "the fact that Executive Relocation has been very profitable," says Robert Rosing, president of the Sirva Relocation division.

The parent company could use an injection of profits. On the day the acquisition was announced, Sirva surprised Wall Street with results for the third quarter ended Sept. 30 that were well short of expectations. Revenues rose 12% to $710.7 million, but earnings plunged 65% to $9.1 million, or 12 cents per diluted share, as operations in Europe turned weak and the company elected to take a special charge of $15.2 million to boost its insurance reserves.

Wall Street analysts had expected earnings of 53 cents a share. In a single day, Nov. 9, Sirva's stock lost one-fourth its value, diving $5.83 a share to $17.95. Within days, at least a half-dozen law firms that specialize in securities issues had filed lawsuits charging that financial statements issued before the company's November 2003 initial public offering of stock and a June 2004 secondary offering of shares were false and misleading. They also charged that management had materially inflated earnings and shareholders' equity.

The lawsuits are expected to be consolidated at a hearing Jan. 18 in U.S. District Court in Chicago. Sirva declined to comment on the suits, though in a conference call last month, President and CEO Brian P. Kelley insisted that the decline in Europe and the change in insurance reserves came into view only in the last six weeks of the third quarter.

Relocation services have been singled out as one of Sirva's most profitable and fastest-growing segments. In September the company acquired a New York relocation specialist, D. J. Knight & Co., that had $5 million in revenues. Before that, Sirva also acquired similar firms in New Jersey and in Brussels, Belgium. More deals are likely.

"There are about 45 nationwide relocation management companies in the U.S., and that number has been shrinking as the industry consolidates," says H. Cris Collie, executive vice-president of the Employee Relocation Council in Washington, D.C. With deregulation of the trucking industry, he explains, profit margins on ordinary household moves have gotten thin. Meantime, big corporations increasingly have been looking to outsource the chores involved in moving key employees. "The competition for these corporate contracts has become very keen," Mr. Collie says.